A “rising tide” of City investors are set to replace small-time buy-to-let landlords who are being driven out of the market by higher interest rates, experts have said.
The build-to-rent sector will double in size over the next three years, according to forecasts by property consultants JLL, accounting for a fifth of all new homes built over the period.
The surge in purpose built rental properties underwritten by large pension funds and asset managers comes just as many buy-to-let landlords are being forced out of the market by soaring interest rates.
A typical landlord with an interest-only mortgage will see their payments triple when they refinance this year, wiping out any profit on the average rental property.
Hamptons estate agents has forecast that the private rental sector will see a net loss of 37,480 properties this year as a result.
Emma Rosser, associate director for living research at JLL, said: “We are going to see a shift away from small landlords and that is going to be replaced with large landlords, the professionalisation of the sector.”
Institutions have invested £32.5bn into Britain’s build-to-rent sector over the last decade, mostly building student accommodation and inner city housing for young professionals.
These investors have enough cash to be protected from high borrowing costs and are forecast to make-up an ever growing chunk of the market as smaller players sell-up.
Crucially, investors are now pivoting into building suburban houses – the bread and butter of traditional small-scale landlords.
In 2022, just 13pc of build-to-rent homes were single family houses. By 2025, this share will be 42pc.
Ms Rosser said: “This rising tide of investment has been building momentum over the last decade.”
Institutional investors will build 88,000 new private rental homes over the next three years, JLL forecasts.
The numbers are still small compared to the size of the existing rental sector, which consists of 5.5 million homes across the UK. However, the growth suggests that City investors will gain a significant foothold in the market.
The growth of City-backed rental properties and the financial firepower underpinning the sector suggests that buy-to-let landlords selling up today may struggle to compete if they seek to re-enter the market in future.
Ms Rosser said: “We have come from a buy-to-let model where supply has really been built on debt. Now, it is going to be focused on equity. That is possible through very large, multi-billion pound pension funds.”
“It all points to a big shift.”
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Source: https://finance.yahoo.com/news/city-investors-land-grab-rental-175757405.html